Page 68 - Azerbaijan State University of Economics

Fariz A. Guliyev: The economics of financial securities for environmental obligations and
their impact in royalty revenues from Alberta oil sands in North America

On the other hand, when looked at the tax and royalty calculations we could see the

disadvantage to the Approval Holder. Approval Holder would be able to deduct only $200K

from its revenue as security expenses, rather than entire $10 million, during that same year. That

would leave more revenues for both tax and royalty purposes. In other words, Approval Holder

would pay more cash for tax and royalty remittances at Year1.

Qualifying Environmental Trust (QET)

Qualifying Environmental Trusts are more costly to Approval Holders but leaves

considerably less royalty and tax collections for the government at any period QETs are used.

With Qualifying Environmental Trusts the entire amount of the instrument ($10 million) would

be set aside by Approval Holders. This means Approval Holders must actually set aside the face

amount stated as QETs. The entire QET amount is deductable for income tax purposes meaning

the entire face amount are deducted from the current year revenue of an Approval Holder thus

leaving less Profit available for both Tax and Royalty calculation purposes. QETs are discussed

in further detail in section 3.1 and 3.2.

3. Impacts of qualifying environmental trusts (QETs)

3.1. Royalty Revenue impact of QETS

Royalty revenues comprise a great portion of the Alberta Government Revenue. Royalty

revenues are calculated based on the market price of the product being produced(In accordance

with Oil Sands Royalty Regulation, 2009 Government of Alberta 2009 the product can be many

forms of crude: synthetic crude, bitumen, blended bitumen etc. For a complete list refer to this

source.). IN accordance with the Mine and Minerals Act of the Government of Alberta royalty is

paid after a difference between revenues and allowed costs. QETs fall into the category where

Approval Holders can deduct the full face amount of QETs as allowed costs to determine the

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